# Assume the government puts \$50/trip tax on producers. Answer the following questions: 4. What is new equilibrium price of train trips to consumers?

rain and bus trips between two towns are provided by separate companies. The demand for train trips is:D1 = 3,000 – 300T1 + 25T2 + 3YWhere D1 is annual demand for train trips, T1 is price of train trips, T2 is price of bus trips and Y is average annual income.The supply of train trips by the industry can be described by S1 = 200T1, with S1 being train trips per year, so that demand equals supply (ie., D1=S1).Y (average annual income) is \$75,000 and the price of bus trips is T2 = \$500.

1. What is the equilibrium price of train trips?

2. How many train trips are provided and purchased?

3. Calculate the producer surplus for the train trips providers.

Assume the government puts \$50/trip tax on producers. Answer the following questions:

4. What is new equilibrium price of train trips to consumers?

5. What is the new equilibrium price of train trips to producers?

6. How many train trips are produced and sold?

7. How much tax revenue is raised?

8.The government decided not to apply the tax, but a bus company who can dominate the market starts to provide bus trips. Its supply curve (called marginal cost curve) for bus trips is:

S2 = 500 + 40T1

9. How many bus trips will now be produced?

10. How many bus trips will now be provided by the bus companies operating before the extra bus company entered the market?

Train and bus trips between two towns are provided by